Hermes Investment Management, the £33.6 billion manager, has been investing in the development of a number of Environment, Social and Governance (ESG) tools for its fund managers and engagers to use to make enhanced investment decisions and to better inform engagement activities with companies on ESG matters.

Hermes will be launching a carbon tool that allows fund managers to assess their fund’s carbon performance, carbon risk, and corresponding engagements with investee companies in a comprehensive manner.

The tool will also be the source for enhanced client reporting to demonstrate how ESG and engagement is being credibly integrated into the firm’s fund and stewardship offerings.

The carbon tool will assess and integrate the following four key elements, making it a cutting-edge approach in evaluating the impact that investment funds have on the environment:

1. Measuring the carbon risk of an investment fund relative to its benchmark and of listed companies relative to their peers, including Scope 1, Scope 2, and Scope 3 emissions
2. Calculating the profit at risk for an investment fund for different carbon pricing and policy scenarios
3. Identifying companies with which carbon-focused engagement should be initiated or intensified
4. Gauging the level of carbon risk being engaged on within portfolios – and the progress achieved

Eoin Murray, Head of Investment, said: “This is a ground-breaking tool as it reflects our integrated approach as a responsible investor and owner. It helps our fund managers to more effectively take into account information about specific carbon risk and thereby enhance their investment decisions. Assessing carbon risk helps identify investment opportunities and threats to value, and begin or intensify engagements that can reduce the risk of holding exposed companies.”

Leon Kamhi, Head of Responsibility, stated: “High-quality ESG information enables fund managers and engagers to perform effectively and improve communications with clients and their beneficiaries. Our new tools will better demonstrate to clients how ESG and engagement is being deeply integrated into our investment and stewardship offerings. Moreover, combined with our engagement intelligence, the carbon tool is powerful in delivering real-time and specific carbon information to fund managers and engagers alike.”